Managerial Accounting:

An Introduction To Concepts,
Methods, And Uses

Chapter 12
Incentive Issues

Maher, Stickney and Weil

Learning Objectives (Slide 1 of

3)

Describe key characteristics of divisional

incentive compensation plans.

Explain how incentive plans can affect the

development phase of the product life cycle.

Compare and contrast expectancy and

agency approaches to motivation.

Describe the balanced scorecard as a way to

tie performance measures to organizational
goals.

Learning Objectives (Slide 2 of

3)

Explain the importance of performance

measures for the four balanced scorecard
perspectives.

Explain what constitutes fraudulent

financial reporting.

Define the two most common types of

fraud and demonstrate their impact on
financial statements.

Learning Objectives (Slide 3 of

3)

Identify the incentives for committing

financial fraud.

Explain how environmental conditions

influence fraudulent conduct.

Identify controls that can be instituted to

prevent financial fraud.

Discuss Divisional Incentive

Compensation Plans (Slide 1 of 4)

Discuss Divisional Incentive

Compensation Plans (Slide 2 of 4)

Discuss Divisional Incentive

Compensation Plans (Slide 3 of 4)

Discuss Divisional Incentive

Compensation Plans (Slide 4 of 4)

Review Incentives and the

Product Life Cycle

Views of Behavior (Slide 1 of 3)

Define the expectancy theory view

Expectancy Theory
Perspective
Expectancy of
Objective Probability

Expectancy of
Objective Probability

Employee
Employee
Performance
Rewards
Performance
Rewards
Effort
Effort
That Effort Will Result
That Effort Will Result
in Performance
in Rewards

Views of Behavior (Slide 2 of 3)

Agency theory - focuses on:
Relations between principals and
agents where principals assign
responsibility and agents work on
behalf of the principal
The cost of agents pursuing their own
interests instead of those of the
principal

Views of Behavior (Slide 3 of 3)

Define the Agency theory view

Balanced Scorecard (Slide 1 of

5)

Define The balanced scorecard

Most companies use four categories or

perspectives of performance
measures
A company can build an incentive plan
around these four perspectives

Draw the Balanced

Scorecard

Balanced Scorecard (Slide 2 of

5)

Learning and growth perspective indicates how well the infrastructure for innovation
and long-term growth is working
Focuses on developing the capabilities of
employees
Key measures for evaluating manager
performance in this area might include:
Employee satisfaction
Employee retention
Employee productivity

Balanced Scorecard (Slide 3 of

5)

Internal business & production process

perspective - indicates how well internal business
processes are working
Closely related to the learning and growth
perspective
Employees are the best source of better ideas
for better business processes
Supplier relations are critical for success
Company may provide incentives for good
supplier relations such as certification
programs

Balanced Scorecard (Slide 4 of

5)

Customer perspective - indicates how the

companys strategy and operations add value

to customers
Focuses on how a company should look to its
customers for success
Company should provide incentives to employees
to meet customer expectations
Performance measures might include:
Customer satisfaction and retention
Market share
Customer profitability

Balanced Scorecard (Slide 5 of

5)

Financial perspective - indicates whether

companys strategy and operations add
value to shareholders
Performance measures include:
Net income
Return on investment

Explain Motivational Issues in

Designing Incentive Systems

Problems With Incentive

Compensation Plans

Fraudulent Financial
Reporting
Define Fraudulent financial reporting

Types of Fraud
What are the two most common types
of financial statement fraud?

Causes of Financial Fraud

Fraudulent financial reporting may
occur because of a combination of
pressures, incentives, opportunities,
and environment
May result from:
High-pressure performance evaluation
systems
The environment top management sets for
dealing with ethical issues
Lack of, or inadequate, internal controls

Internal Controls
Companies establish internal controls
to help prevent fraud. Define Internal
Controls

Internal Controls
A basic internal control would
involve a separation of duties so that
one employee could not carry out a
series of tasks to commit fraud and
take steps to hide it

Auditing
Internal auditors can deter fraud by
reviewing and testing internal controls
and ensuring controls are in place and
working properly
Independent auditors provide an opinion
on the financial statements
Fraud detection is not their primary
responsibility, but presence of auditors and
their review of the internal control system
should help to deter it

If you have any comments or suggestions concerning this

PowerPoint Presentation for Managerial Accounting, An
Introduction To Concepts, Methods, And Uses, please contact:
Dr. Michael Blue, CFE, CPA, CMA
blue@bloomu.edu
Bloomsburg University of Pennsylvania